Bank activity: World Bank initiates short-term borrowings
On September 29, 1982, the International Bank for Reconstruction and Development (the World Bank) began to offer discount notes under a short-term borrowing program approved by its Board last July. The Bank anticipates that in fiscal year 1983 it will have outstanding up to US$1.5 billion in short-term discount notes and that it will borrow about $8 billion in the fixed-rate medium to long-term markets. The initial offering of notes is being made in the U.S. domestic market.
In the two weeks preceding the offering, Eugene H. Rotberg, Vice President and Treasurer of the Bank, made presentations to groups of prospective institutional investors and to the sales forces of the five dealers offering the discount notes. He explained that the financial strength of the Bank is based principally on the size of its liquid assets, the quality and diversification of its loan portfolio, its broad access to financial markets, its substantial capital and reserves, and its consistent profitability.
The Bank’s financial assets, Mr. Rotberg observed, are its liquidity and its loan portfolio. Its liquidity ($9.4 billion at the end of fiscal year 1982 in actively managed investments in money market instruments) gives the Bank flexibility to decide when, where, and how much to borrow. Its loans are to, or are unconditionally guaranteed by, member countries for specific economic development projects that must produce acceptable rates of return, be of high priority in the country’s development program, and be supervised until physical completion. Disbursed and outstanding loans amounted to $29.2 billion at June 30, 1982, and undisbursed loans (including loans approved but not yet effective) were $32 billion. Disbursements typically take 3–7 years and are against documented expenditures primarily for goods and services procured under international competitive bidding. The Bank has never suffered a loss on a loan or had a nonaccruing loan, and payment delays have been insignificant. The Bank follows a policy of not taking part in debt rescheduling agreements.
The Bank’s liabilities consist of $31.8 billion in borrowings plus $7.8 billion in equity. The Bank’s borrowing policy is to diversify by currency, country, source, and maturity for maximum funding flexibility. The Bank enjoys the highest quality standing for its issues, which are denominated in 18 different currencies. Its equity consists of $4.1 billion in capital paid in by member countries plus $3.7 billion in retained earnings and reserves. (The Bank’s net income for the last fiscal year was $598 million, and it has been profitable every year since 1947.) Accordingly, its debt/equity ratio is 4.1 to 1 and its outstanding loan/equity ratio is 3.7 to 1. Finally, over $39 billion in callable capital may be called by the Bank from member governments but only to meet obligations for borrowings or guarantees. The above data is as of June 30, 1982.
Mr. Rotberg also emphasized that the Bank does not need to raise money by selling discount notes in lieu of selling bonds with longer maturities but has chosen to initiate the program now to have additional flexibility in managing its financing operations in conjunction with its recent decision to make new loans at variable interest rates.
Fund activity: Key quota and SDR matters before Board
The consideration of unresolved issues relating to the Eighth General Review of Quotas will occupy a considerable amount of Fund time over the next few months. The communiqué, issued by the Fund’s Interim Committee at the Annual Meetings in Toronto in September urged the Fund’s Executive Board to give high priority to quota-related matters so that the key issues of size and distribution of the quota increase can be agreed on prior to the next Interim Committee meeting, April 27–28, 1983, in Washington, DC.
Having reached a consensus on the formula for calculating quotas, the Fund’s Executive Board must still agree on the overall increase in quotas and the distribution of such increase between general and selective increases. Specific topics that will be examined include the Fund’s policy on minimum quotas, quota increases as they affect Fund liquidity, and modalities of payment of quota increases.
Paralleling this work will be an assessment by the Board of the adequacy of existing Fund facilities to alleviate strains in the international system, as well as consideration of a proposal being prepared by the U.S. authorities to establish an additional, permanent borrowing facility that would be available to the Fund on a contingency basis for use in extraordinary circumstances.
The Interim Commitee communiqué also asked the Executive Board to seek a “convergence of views” to permit the Fund’s Managing Director to submit a proposal concerning new special drawing rights (SDR) allocations in the current basic period. In addition, the Board is expected to consider various staff recommendations for improving the usability of the SDR over the next few months.
Members’ drawings from the Fund under its various facilities, excluding reserve tranche purchases, totaled SDR 30.7 million in September, raising total purchases in 1982 to SDR 4.4 billion, compared with purchases of SDR 5 billion for the comparable period in 1981. All SDR 30.7 million were credit tranche purchases under stand-by arrangements. There were 20 stand-by arrangements and 8 extended arrangements in effect at the end of September. Total repurchases by Fund members in September were SDR 124.8 million, bringing repurchases in 1982 to SDR 1.3 billion. Total purchases less repurchases were SDR 3.1 billion, which compares with a net credit figure of SDR 3.3 billion for the corresponding nine-month period in 1981. Reserve tranche purchases from January through September this year totaled SDR 1.1 billion, versus SDR 279.7 million for the same period in 1981.